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Allow us to preface this comment by reminding readers that the
path to economic recovery will (eventually) be paved by growth in
aggregate (i.e. not just average) personal income – which means a
combination of (a) more people employed (both on a nominal basis
and as a percentage of population) and (b) an improvement in the
earnings of those employed.

We note this obvious truism to highlight our reaction to today’s
Employment Situation report from the BLS.

Let’s get beyond the hubbub over the algorithmic anomalies that
bedevil the disparity between the ADP and BLS interpretation of
jobs added in December and, as we do each month, drill down into
the details of what the Labor Department has to tell us.

The reduction in the number of unemployed (and the driver of the
reduction in the headline unemployment rate to 9.4%) derives
nearly equally from a decline of 260,000 in the labor force and
the addition of 297,00 people who say they are employed (in one
form or another).

While the additional jobs (in both the household and
establishment surveys) are greatly welcome, it will be tough to
boost aggregate personal income with fewer people seeking
work. This is also seen in an employment-population ratio
that is essentially unimproved from one year ago.

The aggregate number of people who count as employed actually
fell during the 4th quarter – from 139,267 at the end of August
to 139,206 in December.

Average weekly hours worked have been flat at 34.3 for the entire
quarter and hourly wages have risen by an infinitesimally small
0.17% (4 cents/hour) - lagging by half the rate of CPI growth
during the same period.

We are seeing what appears to be evidence of structural
unemployment among those in the prime, higher earning 35 to 44
year old demographic, where unemployment actually increased in
December, both on a nominal and percentage basis. While we
continue to see employment increase among younger, cheaper,
workers, this month we saw a sizable jump in the number of
workers 55 and over – reflecting a trend towards the re-entry
into the labor force by older Americans affected by economic
dislocation, as well as an aging population. Nominal
employment in the 55+ demographic has increased by 3.30% over the
past 12 months, while employment in the 25 to 54 year old
demographic has declined by 0.07% during the same period.

While the headline (U-3) unemployment rate declined at the rate
of 0.408% from 9.8% to 9.4%, the rate of decline in the U-6
underemployment rate was only 0.18% (from 17.0% to 16.7%) as the
marginally attached labor force actually increased by 13.5% (from
1.13 million to 1.28 million) partially offsetting the decline in
the headline labor force number, and we continue to rely on a
good deal of employment that is part time for economic reasons.

The Establishment survey saw 100% of the net headline job
increase coming from the service sector (with goods producing
jobs flat, and actually declining significantly on a
non-seasonally adjusted basis). The 113,000 job, private
sector increase was entirely dependent on seasonal adjustment
factors (declining by 205,000 on an unadjusted basis) and was
over 80% dependent on the perennially increasing healthcare
sector and the seasonally sensitive leisure and hospitality
(particularly food services – do we hear the sizzle of hamburger
flipping in the background?) sector.

While the employment situation is not as dire as that which faced
us earlier in the year – a dynamic employment recovery this is
not. We remain laser focused on the number of wage earners,
their wages and hours, the dispersion of workers among higher and
lower earning demographics and a deceasing reliance on temporary
employment and as the real measures of macroeconomic
impact. We didn’t get what we wanted this Christmas from
the Bureau of Labor Statistics.

Short Note on Early Retail Sales Data

The fairly lackluster chain store sales data that has hit the
tape this week has confirmed for us the suspicions raised in our
November report Retail Sales as Echoes of a Pre-Crisis Habit and
commented on again in the attached email. We await this
afternoon’s consumer credit data and next Friday’s full December
retail sales report from the Census Bureau, but if this early
trend shows up in the broader data, it will provide significant
support for our view that expansion and contraction of retail
sales in the post-panic U.S. economy has been predominantly the
result of fluctuations in the use and repayment of consumer
credit facilities, not the normal recovery patterns expected
following a garden-variety recession. These activities
principally represent the overall recent patterns of consumer
saving, punctuated by periodic dis-saving as credit facilities
free up, are employed again, and then must be paid down anew.

The only escape from the foregoing pattern lies in improvement in
aggregate (not average) personal incomes, at which we can only
hope that 2011 gives us a better shot than did 2010.